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Question: 1. Daily settlement with a futures contract A speculator bought a CME British pound futures contract (£62,500) four days ago at the rate of $1.25/£ and closes the position today at the rate of $1.26/£. During the four-day investment horizon, the same futures contract with the same maturity was sold at the following prices:

Day 0: Position open at the rate of $1.25/£

Day 1: $1.26/£ Day 2: $1.28/£

Day 3: $1.27/£ Day 4: $1.26/£

a.Calculate the daily gain/loss for the four days.

b.What is the total gain/loss from this investment?

c.Answer the above two questions assuming the speculator short the contract instead of long (buy) the contract.

2. Draw a profit profile of the following options and indicate 1) what is the break-even price, 2) what is the maximum gain, and 3) what is the maximum loss. (Hint: refer to textbook page 290-293, exhibit 8.5, 8.6, 8.7 and 8.8)

a.Buyer of a call option with exercise price X=$1.30/€, and premium of $0.20/€.

b.Seller of a call option with exercise price X=$1.30/€, and premium of $0.20/€.

c. Buyer of a put option with exercise price X=$1.30/€, and premium of $0.20/€.

d. Seller (writer) of a put option with exercise price X=$1.30/€, and premium of $0.20/€.

Does anyone can help me for this homework? I want to compare with the answers that I have here. Can anyone draw the profit profile with the break even point, the maximum gain and loss?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M92761629

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